Modern Keynesian Macroeconomics — An Assault on the Human Mind

by | Feb 27, 2002

Nearly half a century ago the popular economist John Maynard Keynes wrote, “Practical men, who believe themselves to be quite exempt from intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” When […]

Nearly half a century ago the popular economist John Maynard Keynes wrote, “Practical men, who believe themselves to be quite exempt from intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

When Keynes wrote those words, I doubt he imagined that the “academic scribbler” he was writing about was in fact himself.

Last semester I suffered through what I hope will be my most difficult class at Stern, International Macroeconomics. Getting the “A” wasn’t the difficult part, it was stomaching and regurgitating the falsehoods, evasions, and malevolent policy advice of Keynesian macroeconomics.

Most Stern students will only take one course in macroeconomics, and sadly, it appears that in that one class, students are taught less than nothing. Rather than an education, what I and my classmates received was a dis-education, being taught false theories, and being told that the common-sense ideas they already had accumulated about economics must be erased. An unwary student would leave the class knowing less about economics than when he entered.

Let’s face it — Keynesian economics certainly didn’t provide me or my classmates with the ability to predict the economic future. Even top professional Keynesian economists predict the future with about the same accuracy as Miss Cleo, though at far greater expense. And very few of us left our global macro class thinking that we had a greater understanding of how the economy worked, or had gained a valuable professional skill, unless it’s how to pretend to understand Keynesian analysis.

To learn any subject, students must be taught how new concepts are rooted in reality, and are then shown how to integrate these concepts into a logical structure that offers a broader and deeper understanding of reality. If new concepts are not tied to observations of reality, then “learning” becomes the opposite – it becomes an exercise in intellectual disintegration – where students are told to abandon the concepts and ideas they have gathered through observation, and to instead memorize and obey the professor’s new “floating” ideas backed by nothing but the student’s fear of a failing grade. Then “learning” becomes a meaningless, disconnected, useless exercise, conveying words but not knowledge.

For example: If apples are razors and oranges are blades, then we can shave with fruit salad. Write an essay applying this theory to your grocery shopping – 15 points.

Many students appeared shell-shocked, wondering if they were really supposed to understand these theories, wondering if they somehow missed a lecture when the professor connected his fanciful curves to the economic reality they live in. (The Keynesian half-hearted attempts to connect theory to reality via the “Keynesian Cross” and the theory of “Liquidity Preference” are arbitrary, narrow, and unconvincing.) When a student attempted, as a rational person would, to somehow connect Keynesian theory to their own observations of reality and the business world, he got a response similar to Groucho Marx’s: “Who are you going to believe, Me, or your lying eyes?”

In class, I was asked to imagine myself some sort of economic dictator, using the coercive powers of the state to take from some people and give to others. To steal from one man’s savings, to provide for another man’s leisure. To try to prevent people from saving for the future, and force them to spend as if there’s no tomorrow. After all, as Keynes famously said “in the long run we are all dead.”

To get my A, I had to debase myself on paper – I had to pretend that the salvation of an economy is high government spending, and more government controls, not a reduced tax burden on producers. I had to pretend that I thought the main reason Singapore has grown faster than North Korea over the past 30 years is that Singaporeans save more of their money (note that the growth differences were the result of Singapore being a business-friendly, mostly free economy, while North Korea is a communist tyranny).

Of course I was able to recite the standard Keynesian economic lines–I’ve been teaching myself economics for over a decade, learning about the wholesale intellectual bankruptcy of the Keynesian mainstream, and discovering better alternative frameworks. So I know my enemy well.

What was the quickest way to answer any question in class? – just imagine what the Democratic party shill, Professor Paul Krugman would write in his New York Times column on the subject. Whatever hurts “rich people” most and expands the size and scope of the government in the economy is generally the “correct” answer in Keynesian analysis. And that’s why Keynes became popular in the first place – his scribblings provided a “scientific” justification for the big-government schemes of leftist politicians and their friends in Universities. Keynes’ popularity in the 30’s emerged from emotions of envy and the socialist hatred of business and laissez-faire, covered by the veneer of academic respectability.

In International Macro we were taught that:

  • The government spending your money is better than you spending your own.
  • Tricking or forcing people to spend money is devilishly tricky, but the production of useful goods is easy and automatic, and not a concern for macroeconomists.
  • Government interference in the economy can’t harm incentives to wealth production, but it wouldn’t matter anyway, since consumption, not production, is a true economists concern.
  • Saving is a vice, except in the long term, but you’ll be dead by then anyway.
  • We were poor in the 1980s because of Republicans.
  • Interest rates are determined by how much cash people want in their pockets, so when the government starts printing (devaluing) money, interest rates go down.
  • People don’t have rational expectations about the future, but rather act like Pavlov’s dogs.
  • Currency devaluation makes us richer.
  • The largest recent experiment in Keynesian policy, Japan’s massive public works spending, failed because it was “small and timid,” not due to failure of Keynesian theory.
  • One learns economics by playing with algebra on the chalkboard, rather than by observing the nature and actions of individuals and companies that produce, save, invest, and consume wealth.

Outside of most university classrooms, there’s a great deal one can learn about economics. The economist friends and acquaintances I have who are measured by their practical results in business rather than adherence to Keynesian orthodoxy, have almost all abandoned Keynesian economic theory out of necessity – it doesn’t work, and doesn’t make sense.

They have found more coherent and useful ideas among the ideas of the Classical, Supply-Side, Rational Expectations, and Austrian economic schools of thought. Considering that I was paying over a dollar a minute for this macroeconomics class, it would have been nice for these more useful ideas to have been introduced and taught, rather than denigrated or ignored.

Some parting words for my classmates – the doubt and confusion you felt in Macroeconomics class was not your fault. Keynesian economics cannot be rationally believed in and practiced, because it’s not consistent with reality. It can only be accepted on faith, and toyed with as a perverse academic game by manipulating equations whose variables represent nothing real. Now that the final is over, the healthiest thing you can do to recover from the trauma is to forget the fantasies, and return to using your mind to acquire knowledge of reality.

Andrew West is a Contributing Economics Editor for Capitalism Magazine. In 1997 he received the Chartered Financial Analyst designation from the Association for Investment Management and Research.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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